How to find a financial adviser who shares your values
Q: I am looking for a financial adviser to help me make wise, socially responsible investing decisions. Do you know where I can find a listing or directory of such advisers?
D.P., via e-mail
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A: You're going to have to do some digging, because while there are thousands of financial planners, many may not be on the same page as you when it comes to picking investments. SocialFunds.com lists more than 1,200 planners on its website (www.socialfunds.com).
These advisers are not licensed by the government. But they are often certified by one of several organizations that are also happy to point you in the right direction. Try either the Financial Planning Association (www.fpanet.org, 800-322-4237), or the National Association of Personal Financial Advisors (www.napfa.org, 800-366-2732).
After you track down some planners, you'll have to contact them directly to find out whether they follow the same principles of socially responsible investing as you. Most planners will give you a straight answer, but just in case, ask for references who can tell you how happy they've been with their recommendations.
Q: I am close to retirement, but I still have mortgage payments. I have a 401(k) and a cash balance pension plan. There is more than enough money in them to pay off the mortgage. What do you recommend?
J.S., via e-mail
A: This is a great question and one that many retirees face, says Stephen Yeager, a certified financial planner in Warsaw, Ind. But he warns that drawing large amounts from qualified accounts to pay off a mortgage is not always the best route to go.
For instance, if you need $100,000 to pay off your mortgage and are in the highest tax bracket, you could be required to liquidate more than $140,000 from those accounts in order to pay off the house. Reason: The money drawn from a qualified retirement account is treated as ordinary income, so you will need to withdraw additional funds to cover federal and state taxes.
Here are two examples that Mr. Yeager worked up: One would pay off a $100,000 mortgage in one year, and the second over a four-year span. He also makes some assumptions, including that you're married, filing jointly.
If you pay off your $100,000 balance in one year, you'd need to cash in almost $129,000 of either pension plan in order to pay a tax bill of $29,000 and have $100,000 left over. This distribution would have pushed you well into the 28 percent income-tax bracket.
Conversely, if you pay down the loan by $25,000 a year over four years, you would be in the 15 percent tax bracket, cash in about $29,400 per year, and pay $4,400 per year of income taxes. This example illustrates that wise withdrawal decisions can turn a $29,000 tax bill into a $17,600 tax bill - a huge savings.